Here are Five Reasons to revise your Price Strategy.
(1) Last week I wrote about research that had been carried out in the USA regarding property owners who obtain quotes for work to be carried out on their property. The results were that the quotes falling into to the top 50% of prices got 80% of the contracts. The lower 50% priced quotes only got 20% of the orders.
(2) The following research was carried out in the UK to see what peoples reactions are to higher prices: _
A group of people that like to drink wine were studied, and during the study they were linked to a brain scan to see what their psychological reaction was to being shown two bottles of exactly the same wine, but with two different prices. The trade labels were removed from each bottle, then a price label of £5 placed on one bottle and £40 on the other.
The results were that when the subjects were shown the £5 bottle, there was very little extra brain activity. Then they were shown the £40 bottle, and the brain scan showed a great deal of activity, indicating pleasure.
When the subjects were asked which bottle of wine they would purchase, almost all said they would purchase the £40 bottle rather than the £5.
(3) Both these studies go to prove that by being competitive on price will lead potential high profit customers to look elsewhere for their services/products, and businesses offering the lower prices will scoop up the most price sensitive customers, who will want to continue paying low prices well into the future.
(4) High price high profit services obversely have to employ less resources than low price low profit services, therefor making the operational costs lower and the profit margins higher. A low price shows to people that you are desperate, whereas high prices shows that you have a high quality service that people are are lining up for, and you can give the impression that you can afford to turn people away.
(5) There are ways to trick the potential customer into accepting a higher price than normal, this is a combination Decoy pricing and price Anchoring. Here is an example where a 1/4lb burger that usually sells for $8, and the retailer wants to improve the profit margins, so they compose a price list like this:-
1/2lb burger $25
1/4lb burger $9
1/8lb burger $7
As you can see from this example, the retailer has increased the price of the 1/2lb burger by $1, but it looks a bargain compared to the other two.